Guest Column - November 2009
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Design Corner

Budget Reality: The True Bottom Line

By Janet L. Jordan, CPRP

Hard vs. Soft

Hard costs include the construction cost of the "sticks & bricks," or the dollar value of the lowest and best bid on bid opening day, site development, hazardous abatement and contingencies. The furniture, fixtures and equipment, also known as FF&E, can be included in either the hard costs or the soft costs and in some situations may be procured from an entirely separate funding source.

The construction cost is initially an educated estimate, or more an art than a science, of comparable facility square foot costs that is continually refined and tested through the design process phases as increasingly specific information about the project is determined. A design or owner's contingency amount of 10 percent to 20 percent is also factored into the probable cost estimate of construction as a kind of insurance or risk management tool. Typically the design or owner's contingency is used to address unforeseen conditions or issues like discovering an unstable soils problem after the soil borings have been taken, adding more cost to the project. It may be used to help balance the project's descriptive scope as more details emerge with the given budget, and occasionally may be used to enhance the project's scope as agreed upon by the owner and the design team.

Soft costs include professional design fees for the architects, engineers and specialty consultants such as landscape architects, aquatic design engineers or lighting designers. The professional services fees may range from 6.5 percent to 10 percent of the hard cost. Surveying, soils testing, LEED registration, and the printing of specifications and construction documents are considered the owner's responsibility. However, the selection and management of those services are usually coordinated by the architect or engineer, and their fees are reimbursable expenses. The owner is responsible for direct payments for the building permit, inspection fees and water and sewer taps that collectively may cost hundreds of thousands of dollars.

As the design process progresses—from conceptual to schematics, and design development to creation of construction documents—increasingly more qualitative and quantitative information is revealed, resulting in more reliable cost estimates. The design or owner's contingency is gradually reduced to zero by the time the construction documents are complete and ready to be advertised for bidding.